SME builders giving up on housebuilding

While optimism among construction SMEs is higher than it has been for years, smaller builders are giving up any ambition of entering the housebuilding market, which is dominated by larger players.

A harsh winter for the UK’s construction sector has ended with the collapse of the largest supplier to the public sector. Lost work days due to the ‘Beast from the East’, housebuilding down by 14% and record numbers of builders reported material price increases too.

Despite all this, growth optimism among the sector’s SMEs is the highest in five years, according to AXA, one of the UK’s biggest construction insurers.

Fifty-six per cent of SME building firms predict rising workloads in the next six months, double the number in the same period 2016 and up 12 percentage points on Q4 of last year. Numbers who cite ‘lack of work’ as their biggest business risk have fallen too: down from a quarter of firms this time last year to 16%.

The collapse of the construction giant Carillion has not carried through to construction’s SME bedrock. The growing order books of these building firms – 84% of whom rely entirely on work from private householders and local businesses – is another early indication that UK consumer confidence is recovering.

Anticipated growth will be firmly in the small residential category, as few SMEs are looking at the housebuilding and public sector as realistic prospects. While two thirds of SME building firms said they have the appetite to diversify into these bigger projects, just 10% said they will attempt to do so.

The top reason for such pessimism was that both arenas are considered ‘closed shop’, with contracts and permissions going to an elite circle of bigger companies. Difficulties accessing finance and skilled workers were cited in second and third place only.

Gareth Howell, Managing Director, AXA Insurance UK plc, said, “The UK is 100,000 houses per year down on its target for new affordable homes. The biggest public-sector contractor has just crashed, leaving this field open to newcomers. There have been suggestions that small firms will ride to the rescue on both fronts, but they have been out in the cold for way too long. In the case of housebuilding, 30 years or more. Small firms have learnt to live without such projects, but can our infrastructure live without them?”

‘Who you know’ remains the deciding factor in pushing a small firm through the system into bigger projects, making life even harder for small, ambitious firms. Those who had taken on housebuilding or public projects said they had won them primarily by knowing the right people. Having a professional portfolio to present on first contact with officials and managers, both on the firm’s website and in paper form, also helped.

This recommendation is particularly pertinent given the low use of digital channels by UK construction firms compared to other sectors. Just half of SME building firms today have a company website, with word-of-mouth still bring in ten times more work than all other forms of marketing combined.

Those who do have a website struggle to get an effective marketing tool out of it: just 8% say it brings in significant new business. The reviews are even more dire for social media: while four in ten firms have at least one social page, just 4% say they have won work through it.

Twenty years after the launch of the first ratings website for builders, just 16% of building firms say they get work through them. One in five have used the sites but quit them citing membership fees, fierce under-cutting and difficulty sorting the effective sites from the ineffective in a saturated marketplace.